Rising Interest Rates Slow Home Buying

The U.S. Housing Market Started 2022 Red Hot But Has Cooled Significantly in the Months Since

Runaway Inflation and Low-Interest Rates Resulted in Home Prices Soaring, With Home Prices Rising 29% Since the Pandemic Began in Early 2020, But All That Appears to Be Quickly Changing

In an effort to curb inflation, the Federal Reserve has raised interest rates three times so far in 2022: a 0.25% in March, a 0.5% in May and a 0.75% rate hike in June. These raises have brought the benchmark federal-funds lending rate to a 1.5%-1.75% range, with interest rates expected to reach 3.8% by the end of 2022.

The Chairman of the Federal Reserve, Jerome Powell, has stated that interest rates will keep rising as long as inflation is high. Federal Reserve officials believe that the federal-funds lending rate will increase to a 3%-3.375% range, the highest since the start of the Great Recession.

Source: CNBC YouTube

Also Read: U.S. Fed Raises Interest Rates By 0.75%, Its Largest Rate Hike in Nearly Three Decades (VIDEO)

These raises are having a significant impact on home sales, despite prices remaining elevated. May home sales were down 3.4% compared to April and down 8.6% compared to May 2021. Home sales peaked in January 2022, with an annualized run rate of 6.49 million homes sold. The annualized run rate fell sharply to 5.41 million homes sold but is still well up from the pre-pandemic rate of 4.77 million homes sold.

Despite the slowdown in home sales, home prices continue to go up. The median purchase price of a home in the U.S. was $407,600 in May, an all-time high and up 14.8% from May 2021.

It’s expected that rising interest rates will eventually slow down rising home prices, as many buyers are becoming priced out of the market; the interest rate of a 30-year mortgage is currently 5.78%, the highest rate since 2008. However, there is still a national housing shortage, so prices are expected to slow down, not reverse entirely. So if you’re waiting for home prices to go down, you might just be waiting a while.

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